Suppose that in a year an American worker can produce 300 shirts or 100 computer

Question

Suppose that in a year an American worker can produce 300 shirts or 100 computer chips, while a Chinese worker can produce 200 shirts or 40 computer chips.

a) Graph the production possibilities curve for the two countries. Suppose that without trade the workers in each country spend half their time producing each good. Identify this point on your graph.
b) Who has the comparative advantage in shirts? In computer chips? Show, using a table of opportunity costs.
c) Explain at what price of computer chips (in terms of shirts) the two countries might trade.
d) Suppose the countries trade 25 computer chips for 100 shirts. Show the ending consumption possibilities points on your graphs. Which country would benefit from trade? Explain.

Explanation / Answer

a) can't really do it, but it's just a line for each. b) so the opportunity costs are: 1/3 computer chips 3 shirts 1/5 computer chips 5 shirts so the US has the comparative advantage in computer chips, china does in shirts. c) at 1/3>x>1/5 of a ratio of computer chips to shirts. d) both would benefit. (between 1/3 and 1/5)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.